Analysis of Michael Porter’s five force model in the

Pharmaceutical Industry-

The pharmaceutical industry authorizes, develops, and authorizes patient management (or self-
management) drugs (drugs or drugs) to treat, vaccinate, or alleviate patient suffering.

Pharmaceutical companies can sell generic or brand-name drugs and medical devices. They are
subject to numerous laws and regulations governing pharmaceutical patents, testing, protection,
effectiveness, and marketing.

It is one of the fastest-growing economic regions, with global sales exceeding US$982 billion in
2018. About 47% of its total sales come from the United States, with sales of $464 billion in 2018.

In India's domestic pharmaceutical market, sales in 2019 reached 140 million rupees (20.03 billion
U.S. dollars), an annual increase of 9.8% (rupee) over the previous year to 29,015 rupees (18.12
billion U.S. dollars).

And, if we talk about Michael Porter’s five forces model then it is a model that can identify and
analyze the five competitive advantages that shape any industry and help identify the weaknesses and
advantages of an industry. The analysis of the five forces is widely used to identify industry
structures and determine business strategies. Porter's model can be applied to any part of the
economy to understand the level of competition in the industry and improve the company's long-term
profitability. The model name of the Five Forces is named after Harvard Business School professor
Michael E. Porter.

It is a business analysis model that explains why different industries can maintain different levels of
profitability. The five forces model is widely used to analyze the company's industrial structure and
its business strategy. Porter has identified five indisputable forces, some of which play a role in
shaping all markets and industries around the world. These five forces are usually used to measure
the level of competition, attractiveness, and profitability of an industry or market.

Now, let’s look into how Michael porter’s model helps us to analyze the pharmaceutical industry
structure and its business strategy-

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 Porter’s Five Forces Analysis
The analysis examines five competitive forces that affect the industry: threats from new entrants, the
power of suppliers, the power of buyers, availability of substitutes, and competitive rivalry in the
industry. The way these five forces work together provides a good picture of the dynamics of the
industry and whether the sole proprietorship can survive in the industry.

Threat of Subsitute-
Biotechnology for synthetic
pharma products
No subsitute for the
medicines

Power of
Suppliers- Barriers to entry-
Volume benefits Very low barriers to
occurs entry
Input standard, Industry Competition Guovernment
available locally Highly Competitive policies supportive
Numerous supplier- for entry but price
Lower Fixed cost and regulation exist
switching cost low higher working capital
Supplier go for Impeding new
foward integration patent regime will
raise the barriers to
Depend on several entry
organic chemical

Power of Buyers-
End customers do not have
bargaining power
Price sensitivity is less
Highly fragmented market, so
buyers concentration v/s
industry is low

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The threat of new entrants
The high profits of the pharmaceutical industry have created a steady stream of new companies. A
research team with a good idea or a recent patent can find venture capital funds ready to provide
millions of dollars in seed funding. These small companies will not pose a serious threat to large
pharmaceutical companies. One of the most important exit strategies for early investors is to sell a
new product to a large pharmaceutical company when it is in the initial development stage.

Power of Suppliers
The power of suppliers in the pharmaceutical industry is very low. The raw materials used to
manufacture drugs are the basic products of the chemical industry and can be obtained from many
sources. Most manufacturing and research equipment is available from multiple manufacturers.
Suppliers often provide many products to manufacturers, thereby reducing the price of rare materials
and unique equipment.

Power of Buyers
Pharmacies are unique in various industries because medical patients completely lack pricing power.
The physician who prescribes, the physician should not derive moral benefits from the sale of drugs.
How much insurance companies pay for medicines, and what companies pay for medicine
distributors is just a proverb, which means that it has little control over medicine manufacturers.
Insurers may refuse to pay for treatments that they consider too expensive.

The only companies with bargaining power are pharmacies and medical facilities that can satisfy
patient prescriptions. Even these companies have little power over new patented drugs or drugs from
the same manufacturer. Pharmacists focus on their profit margins and have little incentive to offer
patients the lowest possible price.

Availability of Substitutes
The substitution effect depends on the drug used. A new blockbuster drug approved by the FDA is
protected by patents, can solve major health problems, and is the first product of its kind to receive a
multi-billion dollar printing license. Developing a new drug to treat serious diseases may cost tens of
billions of dollars each year. However, it may be the year before the 30th drug used to treat common
diseases paid for the research and development costs.

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After the drug lost its patent, generic drug manufacturers began to sell generic versions at
significantly lower prices. A drug that earns $100 million a year in profits can be turned into a drug
that earns only $1 million a day. There is also a major international problem with counterfeit drugs.
The best of these counterfeiters is to imitate the formulas of real drugs and then sell them at lower
prices, thus hurting corporate profits. The worst fakes are made of substandard materials and may
damage the reputation of legitimate products.

Competitive Rivalry
With global sales exceeding $1 trillion, the pharmaceutical industry may struggle. The extreme
importance of intellectual property rights has led to fierce competition for senior workers and top
researchers. Even strict confidentiality and non-competition clauses cannot prevent the loss of
competitive information.

For each potential new drug, public information is analyzed to understand whether it is possible to
put similar drugs on the market as an alternative. The industry provides a model for large companies
to merge, which can buy small companies with promising research or new drugs